PGW SFF deal demutualisation by stealth?

The proposed joint venture between PGG Wrigthson and Silver Fern Farms is demutualisation in sheep’s clothing according to Alan Robb.

He is an adjunct professor in the co-operatives programme at St Mary’s Unviersity, Canada, and an independent financail analyst and commentator based in New Zealand.

Writing in The NZ Farmers Weekly (not yet on line) he says:

In return for its $220 million, PGW will receive shares giving 50% of the voting equity. It will also have the right to appoint half of the board of directors. The share issue is likely to prevent SFF continuing as a co-operative.

The Co-operative Companies Act 1996 requires that not less than 60% of the voting rights are held by transacting shareholders. As PGW will hold Capital Shares with 50% of the voting equity and the transacting shareholders will have Supplier Shares it seems clear that SFF will no longer qualify as a co-operative.

Farmers who are considering the proposal should be aware of this defect. Will SFF cease to be a co-operative?

…If the board cannot see a future for SFF as a co-operative it has a duty to resign and allow those who are committed to co-operative principles and values to work with other co-operatives in the meat industry.

I spoke to SFF chair Eion Garden a couple of weeks ago about whether the company would be able to retain its co-operative status if the deal with PGW went ahead. He said that PGW will be transacting shareholders. Chief executive Keith Cooper told the ODT the same thing:

PGG-Wrightson would be a transacting shareholder, supplying goods and services to the meat processor and marketer.

“The most important thing is to preserve all the characteristics of a co-operative, with a rebate structure, ownership and governance structure.”

But what does this mean? That PGW is a transacting shareholder by dint of its contract to procure stock of SFF’s behalf? Wouldn’t that make PGW a third-party trader? I don’t have a problem with third parties, but PPCS, as SFF was known until its recent rebranding, has been adamant that it didn’t use third parties.

If this is the case it raises another question: why would PGW be allowed to own 50% of the company’s shares when all other transacting shareholders have their shareholdings capped at a much lower level?